Can a lawyer accept a referral fee from an investment firm for sending clients to it?

Plain-English summary

The inquiry concerned a proposal under which an investment firm would pay the lawyer, in return for referring his clients, a fee based on the dollar amount of each client's investments managed by the firm. The committee concluded that the proposed arrangement may violate one or more of the Rules of Professional Conduct.

The committee listed the rules implicated. It cited RPC 1.6 (confidentiality), because the lawyer would need to use information obtained from the client about the client's need for financial services. It cited RPC 1.7(b), because the arrangement includes either a non-waivable conflict of interest or an agreement that prohibits the lawyer from making the disclosures the rules mandate. It cited RPC 1.8(a), because the arrangement contemplates the lawyer obtaining a pecuniary interest in the client's property while sufficient disclosure is prohibited; RPC 1.8(f), because it suggests the lawyer's independent judgment and advice are surrendered under the agreement with the investment firm; RPC 1.8(h), because some terms suggest the lawyer is limiting his liability to the client; and RPC 2.1, because the lawyer's relationship with the client could include duties to render advice that are prospectively prohibited under the agreement. The committee added that the arrangement strikes at the most fundamental basis of the attorney-client relationship and the client's trust for the opinions, guidance, and directions of the lawyer.

Currency note

This opinion was issued in 1998, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here. Washington's RPC 1.6, 1.7, 1.8, and 2.1 correspond to ABA Model Rules of the same numbers, several of which were restructured in the 2006 revisions, so verify the current rule text and lettering before relying on it.

Common questions

Q: Can a lawyer take a fee from an investment firm for referring clients to it?

A: The committee concluded such an arrangement may violate one or more Rules of Professional Conduct, including RPC 1.7(b), 1.8(a), 1.8(f), 1.8(h), and 2.1, and RPC 1.6.

Q: Why did the committee flag the confidentiality rule?

A: Because the lawyer would need to use information obtained from the client about the client's need for financial services, implicating RPC 1.6.

Q: What was the committee's overall view of the arrangement?

A: It said the arrangement strikes at the most fundamental basis of the attorney-client relationship and the client's trust for the lawyer's opinions, guidance, and directions.

Background and rules framework

The opinion applied Washington RPC 1.6 (confidentiality), RPC 1.7(b) (conflict of interest), RPC 1.8(a) (business transactions with a client and acquiring an interest adverse to a client), RPC 1.8(f) (compensation from one other than the client), RPC 1.8(h) (limiting liability to a client), and RPC 2.1 (the lawyer as advisor and the duty of independent professional judgment). These correspond to ABA Model Rules 1.6, 1.7, 1.8, and 2.1. The committee tied each potential violation to a specific feature of the proposed fee arrangement.

Citations and references

Rules of Professional Conduct:

• ABA Model Rule 1.6 (confidentiality of information); Washington RPC 1.6
• ABA Model Rule 1.7 (conflict of interest: current clients); Washington RPC 1.7(b)
• ABA Model Rule 1.8 (current clients: specific rules); Washington RPC 1.8(a), 1.8(f), 1.8(h)
• ABA Model Rule 2.1 (advisor); Washington RPC 2.1

See also

• WA Ethics Op. 1483: Living-Trust Marketer Fee Sharing
• WA Ethics Op. 1017: Lawyer Who Is Also a Broker
• WSBA Ethics Op. 1072: Referral Fees Between Lawyers

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1046

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 1853
Year Issued: 1998
RPC(s): RPC 1.6; 1.7(b); 1.8(a); 1.8(f)
Subject: Conflict of interest; referral of clients to nonlawyer; lawyer to receive referral fee for clients referred to investment firm

I have been instructed by the Rules of Professional Conduct Committee to respond to your ethics inquiry concerning the referral of clients to non-lawyers. [An investment firm proposed to pay the lawyer, in return for referring his clients, a fee based on the dollar amount of each client's investments managed by the investment firm.]

The Committee has reviewed your inquiry and determined the following: it is the opinion of the RPC Committee that the proposed arrangement between you and [an investment firm] may violate one or more of the Rules of Professional Conduct, including RPC 1.6 requiring client confidences because you need to use information obtained from the client as to their need for financial services; RPC 1.7(b) because the arrangement includes either a non-waiveable conflict of interest, or because the Agreement prohibits the lawyer from making the disclosures which the rules mandates; RPC 1.8(a) because the arrangement contemplates your obtaining a pecuniary interest in the client’s property and sufficient disclosure is prohibited; RPC 1.8(f) because the arrangement suggests that your independent judgment and advice are surrendered under your agreement with [the investment firm]; RPC 1.8(h) because some of the terms of the arrangement suggest that the lawyer is limiting his liability to his client; and RPC 2.1 because your relationship with your client could include duties which require you to render advice to your client which are prospectively prohibited under your agreement with [the investment firm].

The committee was also of the view that your arrangement strikes at the most fundamental basis of the attorney-client relationship and the client’s trust for the opinions, guidance and directions of the lawyer.